trusts Flashcards
does a trust ever fail for a lack of trustee? When can a trustee resign and what procedure follows?
No.
1) court approval upon showing can no longer serve as trustee.
2) accounting: property initially received, receipts/disbursements, property at hand and liabilities
when is there a trust?
settlor delivers trust property to trustee for beneficiaries with intent to create a trust. Trustee must have powers or active duties.
when can trustee be removed?
Material violation of trust’s terms. File a petition for removal.
resulting trust
term courts use when a trust fails. Distribute directly to beneficiaries.
precatory language
not binding
must trust be in writing?
Yes, except personal property (i.e. stocks and bonds) to a trustee other than settlor/beneficiary w/ intent to create simultaneously with or prior to the transfer [but trust of land always in writing]
are trusts default revocable or irrevocable?
Revocable and amenable.
If written trust, revocation/amendment must be written.
can settlor be trustee?
yes.
does naming a person as “joint tenant” on a bank account create a right of survivorship?
No. Must expressly say with right of survivorship.
who has to sign the signature care of a joint bank account for there to be a valid right of survivorship?
the decedent, not the survivor. But if b/w husband and wife and funded by CP, then both.
cy pres
judicial proceeding diverting funds to another charitable activity.
RAP
No interest is good unless it must vest, if at all, not later than 21 years after some life in being .
standing to bring action concerning charitable trust
attorney general and settlor. AG must be given certified copy of petition, or judgment voidable by AG.
what if non-charitable trust violates RAP?
apply “cy pres type” perpetuities reform statute to carry out settlor’s intent as FAR as possible within period of the Rule.
what can trustee do if name charitable beneficiary ceases to exist or qualify as charity for FIT purposes?
Name new charity with same or similar charitable purpose without court approval. Send notice to AG.
Judicial proceeding only necessary where trust purpose changes.
honorary trust gift
trustee on her honor, but if she doesn’t perform the trust, the gift fails and there is a resulting trust. And RAP probably limits to 21 yrs. anyway
can there be a trust for or bequest to an animal?
Trust- yes
Bequest- no
Court can reduce to reasonable amount if excessive
constructive trust elements
wrongful conduct and unjust enrichment
Purchase money resulting trust
A pays purchase price for land, causing title to be in B’s name. Presumption: PMRT. If related, presumption: gift.
if life insurance beneficiary kills insured, is there a constructive trust?
No, bc statute applies so that beneficiary doesn’t take.
effect of spendthrift clause
judgment creditor cannot reach beneficiary’s interest in spendthrift trust by garnishment or attachment.
5 exceptions to spendthrift clause
1) contracts for necessities (medical, food, rent)
2) child support obligations
3) any interest retained by the settlor (income, but not principal, from irrevocable trust) (all of revocable trust)
4) federal tax liens
5) fraudulent transfer
can settlor compel distribution from a discretionary trust? Does a discretionary trust stop a settlor’s creditor from reaching the trust principal or income?
No. Creditor reaches to max extent trustee could distribute to settlor.
Can a beneficiary compel distribution for needed support from a support trust?
Can beneficiary’s creditors who furnish necessaries compel distribution?
Yes.
Where is jrd and in what counties is venue proper?
District courts and statutory probate courts have concurrent jrd
individual trustee: trustee’s residence or where situs of trust is maintained
multiple: situs
corporate: situs
Also where estate administration pending
when can beneficiaries get accounting? Can that right be limited?
On demand after 12 months and 12 month intervals (cannot limit demand right of primary beneficiaries)
what is decanting power? is court approval needed?
power to transfer trust assets to new trust with different provisions. Court approval not required as long as notice given to beneficiaries/remaindermen.
Does trustee have power to ____?
Yes. The Texas Trust Code, which applies to all trusts in Texas except to the extent the trustee’s powers are expanded or limited by the settlor, gives broad fiduciary powers to trustee. Specifically, the Trust Code expressly authorizes a trustee to [do whatever question asks, except self dealing and imprudent investment]
Name 5 examples of self dealing ( violates duty of loyalty). Trustee cannot:
1) borrow trust funds
2) buy or sell trust assets to itself (corp can get court permission)
3) loan funds to trust
4) profit from serving as trustee except for compensation (ex: confidential info or commission)
5) corporate trustee cannot buy its own stock as trust asset (but can retain)
Can settlor waive the self-dealing rules?
Yes. But exculpatory clause, by itself, does not authorize self dealing (and its strictly construed)
If trustee breaches fiduciary duty (self-dealing, imprudent investment), what are beneficiary’s options?
1) deny compensation and remove trustee
2) ratify and waive
2) surcharge for loss. If self dealing, then under no further inquiry rule, the only issue is damages.
3) constructive trust
When does the 4 year statute of limitations for a fiduciary (trustee, executor, guardian) begin to run for a trustee?
when repudiates the trust, dies or resigns, or gives accounting
Can trustee loan to beneficiary?
Yes, if prudent (fair interest, secured loan, reasonable repayment schedule).
can beneficiary recover from a sale by the trustee to the trustee’s relative?
Yes. Loans or sales to relative or business entity of which trustee is an officer, director, partner, employee, or principal shareholder
How do we know if the trustee made an imprudent investment?
Under the Uniform Prudent Investor Act, invest for TOTAL RETURN, taking into account potential appreciation and capital gain as well as ordinary income. Prudence is measured by conduct at the time the investment decision is made, NOT BY HINDSIGHT based on outcome or performance. Under the Uniform Principal And Income Act, trustee can exercise ADJUSTMENT POWER in favor of income beneficiary where appropriate, and CAN ALLOCATE CAPITAL GAIN AND PRINCIPAL TO INCOME.
When is a trustee’s allocation of receipts between principal and income presumed equitable?
If it follows the FIT depletion allowance rules
How are these allocated under the Uniform Principal and Income Act between principal and income?: interest, rental income, cash dividends on stock, eminent domain condemnation award, insurance proceeds for trust property destroyed by fire, delay rental, royalty, bonus.
Income: interest, rental income, cash dividends on stock, ALL delay rental
Principal: eminent domain condemnation award, insurance proceeds for trust property destroyed by fire
Allocate receipts from royalty and bonus equitably.
How are distributions allocated from
a) pension plans, annuities and IRAs?
b) liquidating assets (patents, copyrights, book royalties)
c) money from an entity (corp., part., etc.)
d) stock dividends from an entity
a) 4% cap rule– income until 4% of plan’s or IRA’s value at beginning of accounting period (usually Jan. 1), excess to principal.
b) 10% income, 90% principal
c) all income, unless capital gain under FIT
d) principal
How are these expenses allocated between income and capital?
Trustee’s commissions
ordinary/annual expenses (property tax, casualty insurance premiums, ordinary repairs, mortgage interest payments)
capital expenditures (cap improvements, expenses relating to environmental matters, estate taxes, mortgage principal payments)
trustee’s commissions- 1/2 and 1/2, but trustee can make different allocation if deemed appropriate
ordinary expenses- income
capital expenditures- capital
can trustee refuse to diversify?
No
What can settlor not waive in trust?
1) crime/public policy
2) exculpate for bad faith, intentional or reckless breach
3) statute of limitations
4) duty to respond to accounting demand
5) court’s power for jrd, removal, bond, or to deny compensation
Is trustee personally liable on contracts? How is that different than PR?
Not personally liable on K unless she fails to disclose her representative capacity (that she’s a trustee).
PR is personally liable on K (but entitled to compensation from estate) unless K says otherwise. Signing “executor” not enough.
Is trustee entitled to reimbursement from the trust estate for tort?
Yes, if tort was common incident of the business activity in which the trustee was properly engaged when the tort was committed.
Can beneficiary sue third party for injury to trust property?
Trustee should sue unless:
1) trustee unable or unwilling to bring the action;
2) third party participated with trustee in committing breach of trust
When can trust be modified/terminated?
Upon petition of trustee/beneficiary (not settlor), court can if:
1) purpose fulfilled, or impossible/illegal
2) changed circumstances, so modification/termination will further the purposes of the trust
3) tax purpose
Without court approval:
-If value under 50k, trustee may terminate after notifying beneficiaries.
-Division/merger
How long can the trustee continue to exercise trust powers after termination of the trust, and for what purpose?
For reasonable time needed to wind up trust affairs and make distribution to the beneficiaries.
Federal gift tax exclusion
14k per year. If more, report taxable gift. But doesn’t come into estate tax unless gross estate plus adjusted taxable gifts are 5.43M. Only works for gifts of present interests.
life insurance
count as insured’s gross estate. Beneficiary: life insurance proceeds excluded from gross income.
exclusion for tuition and medical payments
Unlimited exclusion for tuition and medical payments if the payment is made directly to the service provider.
is a revocable trust subject to gift tax?
Not when made, because it’s an “incomplete” gift. But when it’s complete (i.e., settlor dies and money distributed), money in settlor’s gross estate for federal estate tax purposes.
